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Wall St falls after strong service-sector data feeds hawkish Fed fears

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“Stock Exchange” is seen over an entrance to the New York Stock Exchange (NYSE) on Wall St. in New York City, U.S., March 29, 2021. REUTERS/Brendan McDermid/File Photo

Wall Street’s main indexes fell on Monday after better-than expected service-sector activity added to jitters that the U.S. Federal Reserve might continue on its aggressive policy tightening path despite fears of a recession next year.

Data showed U.S. services industry activity unexpectedly picked up in November, with employment rebounding, offering more evidence of underlying momentum in the economy.

The data comes on the heels of a survey last week that showed stronger-than-expected job and wage growth in November, challenging hopes that the Fed might slow the pace and intensity of its rate hikes amid recent signs of ebbing inflation.

“The labor market looks fine and so it’s almost just this kind of bizarre world where good news is bad news,” said Jonathan Waite, fund manager at Frost Investment Advisors.

“Right now it’s more of an issue of watching the Fed and they are going to need to tighten and longer than needed.”

Investors see an 89% chance that the U.S. central bank will increase interest rates by 50 basis points next week, with the rates peaking in May 2023.

The rate-setting Federal Open Market Committee meets on Dec. 13-14, the final meeting in a volatile year, which saw the central bank attempt to arrest a multi-decade rise in inflation with record interest rate hikes.

The aggressive policy tightening has also triggered worries of an economic downturn, with JPMorgan, Citigroup and BlackRock among those that believe a recession is likely in 2023.

At 10:33 a.m. ET, the Dow Jones Industrial Average (.DJI) was down 239.71 points, or 0.70%, at 34,190.17, the S&P 500 (.SPX) was down 39.93 points, or 0.98%, at 4,031.77, and the Nasdaq Composite (.IXIC) was down 128.11 points, or 1.12%, at 11,333.39.

All major Wall Street indexes notched a second straight week of gains last week, with the S&P 500 rising 1.13%, the Dow gaining 0.24% and the Nasdaq climbing 2.1%.

“We have had a nice rally and so that’s giving investors a bit of a chance to take some profits and readjust their portfolio as the year-end approaches,” said Peter Cardillo, chief market economist at Spartan Capital Securities.

“I don’t think it’s the beginning of a downward trend, but more of a slight pause here.”

In other economic data this week, investors will also monitor weekly jobless claims, producer prices and the University of Michigan’s consumer sentiment survey for more clues on the health of the U.S. economy.

Tesla Inc (TSLA.O) fell 4.7% on the electric-vehicle maker’s plans to cut December output of the Model Y at its Shanghai plant by more than 20% from the previous month.

Financials (.SPSY) were among the biggest S&P sectoral losers, down 1.4%. On the other hand, energy shares (.SPNY) outperformed, up 0.1%, tracking volatile crude prices.

Declining issues outnumbered advancers for a 3.99-to-1 ratio on the NYSE and a 2.37-to-1 ratio on the Nasdaq.

The S&P index recorded four new 52-week highs and one new low, while the Nasdaq recorded 54 new highs and 39 new lows.

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